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Welfare and Distributional Effects of the Energy Subsidy Reform in the Gulf Cooperation Council Countries: The Case of Sultanate of Oman

Author

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  • Houcine Boughanmi

    (Department of Natural Resource Economics, Sultan Qaboos University, Oman,)

  • Muhammad Aamir Khan

    (Department of Management Sciences, COMSATS Institute of Information Technology, Islamabad. Pakistan)

Abstract

The Gulf Cooperation council countries (GCC) have recently embarked in an energy subsidy reform following the drastic drop of international oil prices in 2014. The reform consists of increasing energy prices (fuel, electricity, gas) in order to gradually phase out the subsidy and rationalize government expenditure. Governments however are concerned about the adverse effects of high energy prices on inflation, economic growth and the welfare of low-income households. The objective of this paper is to assess the economy wide effects of the energy price increase in Oman focusing in particular on income distribution as reflected in the Gini-coefficients and other inequality indicators. The study uses an extended version of the general equilibrium GTAP Model (MyGATP) in which the single regional household was splitted into a government account and 8 household types based on the income and expenditure survey of Oman. Results indicate the effects of reducing the energy subsidy by 50% would lead to a slight increase in the GDP by 0.62% , an increase in government saving by 2.9 billion US $ and a reduction in household welfare by about 3% due mainly to the increase in the price index of private consumption (general inflation). The effect on the Gini coefficient is however very small showing little sensitivity in the short run of income inequality to the subsidy reform.

Suggested Citation

  • Houcine Boughanmi & Muhammad Aamir Khan, 2019. "Welfare and Distributional Effects of the Energy Subsidy Reform in the Gulf Cooperation Council Countries: The Case of Sultanate of Oman," International Journal of Energy Economics and Policy, Econjournals, vol. 9(1), pages 228-236.
    • Handle: RePEc:eco:journ2:2019-01-29
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    Cited by:

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    2. Muhammad Aamir Khan & Alishba Tahir & Nabila Khurshid & Muhammad Iftikhar ul Husnain & Mukhtar Ahmed & Houcine Boughanmi, 2020. "Economic Effects of Climate Change-Induced Loss of Agricultural Production by 2050: A Case Study of Pakistan," Sustainability, MDPI, vol. 12(3), pages 1-17, February.
    3. Husnain, Muhammad Iftikhar ul & Nasrullah, Nasrullah & Khan, Muhammad Aamir & Banerjee, Suvajit, 2021. "Scrutiny of income related drivers of energy poverty: A global perspective," Energy Policy, Elsevier, vol. 157(C).
    4. Bhuvandas, Dhanyashree & Gundimeda, Haripriya, 2020. "Welfare impacts of transport fuel price changes on Indian households: An application of LA-AIDS model," Energy Policy, Elsevier, vol. 144(C).
    5. Saeed Solaymani, 2021. "Energy subsidy reform evaluation research – reviews in Iran," Greenhouse Gases: Science and Technology, Blackwell Publishing, vol. 11(3), pages 520-538, June.
    6. S. Mauricio Medinaceli Monrroy & Marcelo G. Velázquez Bilbao La Vieja, 2023. "Hydrocarbon Prices and Subsidies in Bolivia 1986 - 2025," Development Research Working Paper Series 05/2023, Institute for Advanced Development Studies.

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    More about this item

    Keywords

    Energy subsidy; MyGATP; Oman;
    All these keywords.

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • D6 - Microeconomics - - Welfare Economics
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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